In 1989, Texas began planning a high-speed train modeled after the French TGV, and came closer than any state to building one. Is the time right for another try?

by AMAN BATHEJA, THE TEXAS TRIBUNE
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March 7, 2014

in 1989, former Lt. Gov. Ben Barnes joined a group of investors hoping to develop a bullet train system in Texas. The company, Texas TGV, planned to build a 200 mph line between Dallas and Houston and then expand to Austin and San Antonio. After four years and more than $70 million in investments, the project collapsed.

“It’s the closest any state has come to having a high-speed train,” Barnes said. “I’ll spend the rest of my life asking what if.”

More than two decades later, Texas Central Railway is trying to revive a part of that earlier project, a privately financed bullet train connecting Dallas and Houston. As the company prepares to do a federally required environmental impact study and hold public meetings along the planned route, its leaders say they expect to avoid the pitfalls of the earlier project, namely inadequate financing and intense opposition from Southwest Airlines.

Texas TGV (named for Train á Grande Vitesse, the French high-speed line) “had great plans but there was a lot of things that they were counting on that did not happen,” Texas Central Railway President Robert Eckels said.

Many rail advocates have put the blame for the demise of the earlier “Supertrain” project on Southwest Airlines, which conducted an aggressive lobbying campaign. Yet the story of the project’s failure is more complicated.

Then, as now, supporters are heralding the possibility of travel between Dallas and Houston in less than 90 minutes. The current plan would use technology from the Central Japan Railway Company, which handles more than 100 million passengers each year on its bullet trains in Japan.

During the 1990s, Japanese firms were among several foreign companies that considered partnering with American firms to bid on a high-speed rail franchise, state records show. The Texas Legislature had created the Texas High-Speed Rail Authority in 1989 to explore the potential for such a franchise after a study had found that the region’s generally flat land and fast-growing population made it an ideal location. Lawmakers made clear that the authority could only consider proposals that were privately funded.

“It is not in the public interest that a high-speed rail facility be built, financed, or operated by the public sector,” the bill creating the authority read.

The authority quickly found itself in the political crosshairs as staffers faced both public officials and private citizens convinced that the agency was setting up the state for a future boondoggle.

“From its inception, the authority has had to carefully walk the line between being an advocate for high-speed rail and being an effective regulator of the private firms wishing to bring high-speed rail to Texas,” an agency strategic plan explained at the time.

Two firms — French-backed Texas TGV and German-backed Texas FasTrac — paid $500,000 each to apply for the state’s first high-speed rail franchise.

Texas TGV’s proposal was especially ambitious. The company envisioned using technology already in use in France to build out a 600-mile network connecting Dallas, Houston, Austin and San Antonio in less than a decade. Company officials predicted they could draw more than 9 million annual riders by 2014.

Some 70 percent of the project’s $6 billion price tag via tax-exempt private activity bonds, more than federal law allowed a company to borrow using that type of financing. The venture hinged on Texas TGV changing federal law to ease the restrictions.

Texas TGV’s optimism was based in large part on its backers’ confidence that a high-speed rail line would draw thousands of Texans who regularly flew between the state’s major cities for work. The plan was a threat to Southwest Airlines, which had built a large portion of its business on the state’s “super-commuters.” Southwest officials said the Texas project was unlike any other high-speed rail project in the world, in that it was focusing more on taking customers from air travel rather than cars.

Herb Kelleher, Southwest’s CEO at the time, predicted that the bullet train would force the airline to raise fares on some Texas routes and end service on others. He also warned that the company might move its corporate headquarters to another state. Southwest Airlines declined to comment for this article.

“Rail has a romantic appeal; but, this case cannot be decided on the basis of nostalgia, or even a desire to emulate the rail service of France and Germany,” Southwest Airlines said in a brief filed with the authority in 1991. “The American reality is that high-speed rail will be viable in Texas only by destroying the convenient and inexpensive transportation service the airlines now provide, and only by absorbing huge public subsidies.”

The project also drew opposition in rural communities. Farmers raised concerns about the tracks dividing their land and the noise from trains impacting the health of livestock. Rick Perry, the agriculture commissioner at the time, expressed reservations about estimates that the project would put as much as 14,000 acres of farmland out of production.

Residents of communities that were on the train’s proposed route but far from the stations also had trouble seeing its value. Groups called DERAIL and Citizens Against the Bullet Train soon formed. State officials received petitions with thousands of signatures opposing the “Texas Supertrain.”

“I would say generally people didn’t show up to say how much they liked the project,” said Steven Polunsky, who was the research and planning director for the Texas High Speed Rail Authority and attended all 39 public scoping meetings. He noted that the project had significant support in urban areas.

When the High-Speed Rail Authority launched a hearing to decide whether to move forward with one of the two franchise applications, Southwest Airlines was permitted to join the proceedings as an intervener. The company’s attorneys filed hundreds of objections, helping drag out the process for weeks. When a letter from President George H.W. Bush encouraging efforts to bring high-speed rail to Texas was submitted as evidence, Southwest’s attorneys argued it was “hearsay.” When state Sen. John Whitmire, D-Houston, submitted testimony on rail-related legislation that he had passed, the airline called it “incompetent” and asked that it be stricken from the record.

The authority’s 11-member board ultimately voted to award Texas TGV a 50-year franchise in 1991, an agreement that required that the company several financing deadlines. The first major one, at the end of 1992, required the company to show that it had secured $171 million in letters of credit.

“There were these milestones installed to make sure we didn’t end up saddled with a half-built project,” said Marc Burns, a former executive director at the authority.

After the first deadline came and went, Texas TGV acknowledged it had not secured the money. The authority revoked the franchise.

“I don’t even know if we had the power to re-award the franchise,” Burns said. “I know there wasn’t the appetite to do so.”

A year later, lawmakers abolished the Texas High-Speed Rail Authority.

Barnes said Southwest Airlines killed the project by persuading two crucial officials — Gov. Ann Richards and U.S. Sen. Lloyd Bentsen, who chaired the Finance Committee — to offer only tepid public support. That hobbled efforts to change federal law to allow for the firm to borrow the billions in tax-exempt bonds that its plan hinged on, he said.

“Our initial investors had to know that there was tax-exempt financing for the remainder of it,” Barnes said.

But others argued that Texas TGV’s financial plan simply never won over enough investors.

“I think we ended up not building the train because you couldn’t make the case that money would be there, one way or another,” Burns said.

As Texas Central High-Speed Railway attempts to succeed where Texas TGV failed, company executives have conveyed confidence in their financial backing. While tax-exempt private activity bonds are not in the firm’s current finance model, Eckels said he could not rule them out as an option. But, he did not foresee the need to change any federal or state laws in order to finance the project.

“We will take advantage of every tool that is out there that is available to every other corporation,” Eckels said.

Barnes, who is consulting for a company affiliated with the project, also expressed confidence that it won’t face the same financial challenges of his earlier effort.

“I’m very pleased,” Barnes said. “I think I’m going to live to see a high-speed train in Texas.”

Southwest Airlines has stayed neutral on the new project and Robert Mann, an aviation consultant in New York, said the company’s business has diversified enough that it would probably view a Texas high-speed rail project as less of a threat.

“They’ve established a nationwide footprint,” Mann said. “I think the issue of intrastate high-speed rail within Texas is just not the same sort of destabilizing issue to Southwest than it was 20 years ago.”

Disclosure: At the time of publication, Southwest Airlines was a corporate sponsor of The Texas Tribune. Ben Barnes was a major donor in 2009. (You can also review the full list of Tribune donors and sponsors below $1,000.)